Hey Julie,
Please kindly check in 'Agent Administration' if SMD Agent is running and is
connected to SolMan if you can't see the Agent please check if it is
visible in SLD, if it is please connect it to SolMan and then run setup again. Otherwise please uninstall SMD Agent and install it again connecting it directly to your SolMan using HTTP Connection via Message Server.
As per the mentioned note: Please refer to SAP note 1232928 ,You need to switch to the dba cockpit that has authorizations to change the backend system then uninstall the backend, and then you can
do this configuration step without the above error.
You may want to refer to the 'Diagnostics Agent Setup Guide' available at
http://wiki.scn.sap.com/wiki/display/TechOps/RCA_Home?original_fqdn=wiki.sdn.sap.com
Hope this helps.
Rgds,
vamc.